So you’ve decided to open a Donor Advised Fund because of all the great benefits it has to offer. Great! Now, do you want to move forward with an endowment or non-endowment fund?
Don’t know the difference? Take two minutes to read below and find out.
An endowment is a permanent fund. Endowment funds are pooled for maximum benefit and invested to achieve long-term capital growth. Contributions are irrevocable and become assets of The Foundation.
Key things to know:
- Principal Balance – The principal balance can never be spent, so the endowment earning power is protected against inflation. Excess income or appreciation is added to the principal to protect its value over time.
- Distributable – The distributable balance consists of net income and appreciation (realized and unrealized) of the principal. This is the portion of the fund from which grants may be made.
- Advantages – The principal amount of money gifted will never be depleted. In this way, the fund will continue to give for good, forever.
- Limitations – As the amount of money available for distribution is based on the principal amount in the fund, each year’s grants will be directly affected by the fund’s overall success in the market.
- Liquidity – The principal balance invested is never liquidated, allowing for a continuous, perpetual gift.
Non-endowment funds have no permanent principal balance and are immediately available for grant distribution. An advised non-endowment fund can become an endowment fund at any time upon request.
Key things to know:
- Advantages – You have the opportunity to make an immediate impact on the community.
- Time – Funds are available for distribution the moment they are received by The San Diego Foundation.
- Limitations – The money you provide has a finite existence. Unless additional funding is provided, the monies available for granting will run out over time.
- Liquidity – All non-endowment pools are 100% liquid. Any amount may be granted from the pool at any time.
Some donors maintain both an endowment fund and a non-endowment fund, allowing them to regularly transfer monies from the non-endowment fund to the endowment fund to help build a balance upon which gifts can be provided in perpetuity.